Journal Article

Application of Garch Model in Forecasting Volatility of Exchange Rates

Abstract

A foreign exchange transaction is an agreement between a buyer and a seller that a given amount of one currency is to be delivered at a specified rate for other currencies in the foreign exchange market. Volatility forecasting for multi-state ahead forecast in a time series amounts to forecast a sequence of future values based on the observed previous values. Examples of time series for which multi-step ahead forecast is useful include crop yield, stock price, and electrical power consumption. However, to achieve this aim, we employ GARCH model to determine the best order to forecast the exchange rate in the foreign exchange market. However, it was concluded that the GARCH has the least Akaike Information Creation (AIC) among the selected orders which were based on the foreign exchange standard plots.

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